EXHIBIT 99.1
FOR IMMEDIATE RELEASE CONTACT: Tammy Nystuen
Select Comfort Corporation
(763) 551-7496
tamara.nystuen@selectcomfort.com
SELECT COMFORT CORPORATION REPORTS
FOURTH QUARTER AND FULL-YEAR EARNINGS
2004 earnings up 16 percent; same-store sales increase 16 percent
MINNEAPOLIS - (Feb. 8, 2005) - Select Comfort Corporation (NASDAQ:
SCSS), the nation's leading bed retailer and creator of the Sleep Number(R) bed,
today announced resultS for the fourth quarter and year ended January 1, 2005.
For fiscal 2004, the company reported earnings of $32 million or $0.80 per
diluted share, a 16 percent increase over net income of $0.69 per diluted share
in 2003. Net sales in 2004 increased 22 percent to $558 million, compared to
$458 million in 2003, with a 16 percent increase in same-store sales.
Select Comfort reported net income in the fourth quarter of $10 million,
or $0.27 per diluted share, which includes a $0.01 per share charge associated
with the expected settlement of California wage and hour litigation, compared
with net income of $0.28 per diluted share in the fourth quarter of 2003. Fourth
quarter 2004 net sales increased 17 percent(1) on an equivalent-week basis to
$149 million, versus 2003 net sales of $137 million.(1)
In 2004, the company repurchased 1.1 million shares for $21 million. As
of January 1, 2005, the company's cash and marketable securities totaled $92
million, with no debt.
"2004 marks another year of growth and market share expansion at Select
Comfort," said Bill McLaughlin, chairman and chief executive officer. "And while
we acknowledge that we had the opportunity to expand even further, we are
pleased to have completed our third consecutive year of sustained growth, making
notable progress in strengthening our position in brand awareness, distribution,
and product innovation across all price points."
McLaughlin continued, "Select Comfort is still in the early stages of
development. Although we more than doubled national unaided brand awareness in
the past two years, it still remains at approximately one-quarter that of the
nation's leading mattress brand, providing us growth opportunity going forward.
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We also grew market dollar share to an estimated five percent, all of which was
led by the achievement of a number of milestones." Those milestones included:
o Supplementing the national brand awareness campaign with comprehensive
local campaigns in 34 markets, reaching 55 percent of the U.S.
population.
o Increasing company-owned stores to 370 with expansion in the past year
focused on large metropolitan areas where market share is lowest.
o Improving and enhancing the company's entire product line, giving it the
most robust product offering to date.
o Initiating the company's first hospitality agreement with Radisson
Hotels and Resorts, designed to encourage awareness and growth through
new consumer trials of the Sleep Number(R) bed.
According to McLaughlin, in 2005 Select Comfort will build upon past
investments to further capitalize on growth potential moving forward. "There
remains significant opportunity ahead of us, as our penetration and brand
awareness remain low, and nearly all markets have potential for distribution
expansion," McLaughlin explained. "We will extend our media campaign, with a
planned increase in media investment to $88 million from $79 million in 2004. We
also plan to increase our store base by nearly 10 percent, while pursuing new
retail partners to supplement our company-owned distribution. Additionally, we
are committed to taking advantage of the significant operating leverage our
business model gives us as we further invest in growth."
BUSINESS OUTLOOK
Select Comfort's business outlook assumes continued performance of
advertising and growth programs and no significant changes to U.S. economic
trends, mattress industry growth rates, or competitive response to its products.
The company's expectations over the long term are to sustain sales growth rates
of at least 15 to 20 percent, with same-store growth between 7 and 12 percent,
leveraging the business model with long-term earnings growth rates of at least
20 to 25 percent, and 2005 earnings growth rates of 20 to 30 percent.
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In 2005, Select Comfort expects sales growth of 18 to 20 percent, including
sales to Radisson Hotels and assuming a same-store growth rate at the upper end
of its target range. The company expects earnings per share of $0.96 to $1.04
(before the impact of expensing stock options, discussed below).
Select Comfort is not providing specific quarterly guidance for 2005, but
expects earnings growth rates to be lower in the first quarter, as it laps
stronger same-store growth comparisons from a year ago, and to accelerate during
the year.
The company is evaluating the application and impact of new accounting
regulations which will require it to expense stock options beginning in the
third quarter of 2005. Financial expectations noted above do not reflect the
impact of expensing these stock options.
CONFERENCE CALL ANNOUNCEMENT
Select Comfort will hold a conference call to discuss its fourth quarter
and year-end results on Feb. 8, 2005, at 4 p.m. Central Time. A simultaneous
webcast of the call will be available in the Investor Relations section of
www.selectcomfort.com. A digital replay of the conference call will be
accessible beginning at approximately 6 p.m. Central Time on Feb. 8, 2005,
through 5 p.m. Central Time on Feb. 15, 2005. To access the replay, please call
866-502-6119. An archived replay of the conference call may also be accessed
after approximately 7 p.m. Central Time on Feb. 8, 2005 at
www.selectcomfort.com.
ABOUT SELECT COMFORT
Founded in 1987, Select Comfort Corporation is the nation's leading bed
retailer(2), holding 31 U.S. issued or pending patents for its personalized
sleep products. The company designs, manufactures and markets a line of
adjustable-firmness mattresses featuring air-chamber technology, branded the
Sleep Number(R) bed, as well as foundations and sleep accessories. Select
Comfort's products are sold through its 370 retail stores located nationwide,
including 13 leased departments in Bed Bath & Beyond stores; through selected
bedding retailers; through its national direct marketing operations; and on the
Internet at www.selectcomfort.com.
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Statements used in this press release that relate to future plans,
events, financial results or performance are forward-looking statements that are
subject to certain risks and uncertainties including, among others, such factors
as general and industry economic trends; uncertainties arising from global
events, consumer confidence, and effectiveness of our advertising and
promotional efforts; our ability to secure suitable retail locations; our
ability to attract and retain qualified sales professionals and other key
employees; consumer acceptance of our products, product quality, innovation and
brand image; our ability to continue to expand and improve our product line;
industry competition; warranty expenses; the outcome of pending litigation,
including consumer class action litigation; our dependence on significant
suppliers; rising regulatory and commodity costs; and the vulnerability of any
suppliers to inflationary pressures, labor negotiations, liquidity concerns or
other factors; increasing government regulations, including new flammability
standards for the bedding industry; as well as the risk factors listed from time
to time in the company's filings with the SEC, including the company's Annual
Report on Form 10-K and other periodic reports filed with the SEC. The company
has no obligation to publicly update or revise any of the forward-looking
statements that may be in this news release.
(1) Fiscal fourth quarters 2004 and 2002 include 13 weeks, as compared to 14
weeks in fiscal fourth quarter of 2003. Same-store sales and sales growth
rates have been adjusted and reported as if each year had the same number of
weeks.
(2) Top 25 Bedding Retailers, Furniture Today, May 24, 2004.
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED TWELVE MONTHS ENDED
---------------------------------- ---------------------------------
JANUARY 1, JANUARY 3, JANUARY 1, JANUARY 3,
2005 2004 2005 2004
---------------- ---------------- ---------------- ----------------
Net sales $148,608 $137,138 $557,639 $458,489
Cost of sales 57,864 51,739 216,965 171,163
---------------- ---------------- ---------------- ----------------
Gross profit 90,744 85,399 340,674 287,326
---------------- ---------------- ---------------- ----------------
Operating expenses:
Sales and marketing 64,522 57,649 249,728 206,129
General and administrative 10,109 10,769 41,218 38,423
Store closings and asset impairments - 4 - 71
---------------- ---------------- ---------------- ----------------
Total operating expenses 74,631 68,422 290,946 244,623
---------------- ---------------- ---------------- ----------------
Operating income 16,113 16,977 49,728 42,703
---------------- ---------------- ---------------- ----------------
Other income (expense):
Interest income 419 214 1,422 612
Interest expense - (14) - (170)
Other, net (8) (26) (8) -
---------------- ---------------- ---------------- ----------------
Other income (expense), net 411 174 1,414 442
---------------- ---------------- ---------------- ----------------
Income before income taxes 16,524 17,151 51,142 43,145
Income tax expense 6,141 6,095 19,469 15,973
---------------- ---------------- ---------------- ----------------
Net income $ 10,383 $ 11,056 $ 31,673 $ 27,172
================ ================ ================ ================
Net income per share - basic $ 0.29 $ 0.32 $ 0.88 $ 0.83
================ ================ ================ ================
Weighted average shares - basic 35,901 34,843 36,158 32,856
================ ================ ================ ================
Net income per share - diluted $ 0.27 $ 0.28 $ 0.80 $ 0.69
================ ================ ================ ================
Weighted average shares - diluted 39,054 39,881 39,683 39,277
================ ================ ================ ================
RECONCILIATION OF EPS INFORMATION:
Net income $ 10,383 $ 11,056 $ 31,673 $ 27,172
Add: Interest expense on convertible debt - - - 81
---------------- ---------------- ---------------- ----------------
Net income available to common
shareholders $ 10,383 $ 11,056 $ 31,673 $ 27,253
================ ================ ================ ================
Weighted average shares outstanding 35,901 34,843 36,158 32,856
Effect of dilutive securities:
Options 1,852 2,919 2,186 2,823
Warrants 1,301 2,119 1,339 3,331
Convertible debt - - - 267
---------------- ---------------- ---------------- ----------------
Dilutive weighted average shares
outstanding 39,054 39,881 39,683 39,277
================ ================ ================ ================
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
JANUARY 1, JANUARY 3,
2005 2004
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 16,066 $ 24,725
Marketable securities - current 35,747 49,322
Accounts receivable, net of allowance for doubtful accounts
of $685 and $619, respectively 8,644 6,823
Inventories 20,481 14,110
Prepaid expenses 7,375 5,968
Deferred tax assets 7,831 6,039
---------------- -----------------
Total current assets 96,144 106,987
Marketable securities - non-current 39,930 1,071
Property and equipment, net 43,911 36,134
Deferred tax assets 7,781 5,620
Other assets 3,617 3,343
----------------- -----------------
Total assets $ 191,383 $ 153,155
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,267 $ 16,502
Customer prepayments 9,368 5,970
Accruals:
Sales returns 5,038 3,469
Compensation and benefits 13,913 17,303
Taxes and withholding 6,392 3,661
Other 8,143 6,110
----------------- -----------------
Total current liabilities 69,121 53,015
Accrued warranty costs 1,845 2,557
Other liabilities 5,394 4,821
----------------- -----------------
Total liabilities 76,360 60,393
----------------- -----------------
Shareholders' equity:
Undesignated preferred stock; 5,000,000 shares authorized, no
shares issued and outstanding - -
Common stock, $.01 par value; 95,000,000 shares authorized,
35,828,222 and 35,769,606 shares issued and outstanding,
respectively 358 358
Additional paid-in capital 95,548 104,085
Unearned compensation (1,752) (877)
Retained earnings (accumulated deficit) 20,869 (10,804)
---------------- -----------------
Total shareholders' equity 115,023 92,762
----------------- -----------------
Total liabilities and shareholders' equity $ 191,383 $ 153,155
================= =================
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
TWELVE MONTHS ENDED
-------------------------------------
JANUARY 1, JANUARY 3,
2005 2004
----------------- ------------------
Cash flows from operating activities:
Net income $ 31,673 $ 27,172
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 13,643 11,145
Amortization of debt discount and deferred finance fees - 130
Non-cash compensation 405 75
Loss on disposal of assets and impaired assets 11 96
Deferred tax (benefit) expense (3,953) 5,648
Change in operating assets and liabilities:
Accounts receivable (1,821) (3,553)
Inventories (6,371) (3,401)
Prepaid expenses (1,407) 223
Other assets (306) 129
Accounts payable 9,765 (1,735)
Accrued sales returns 1,569 288
Accrued compensation and benefits (3,390) 2,913
Accrued taxes and withholding 7,372 5,295
Customer prepayments 3,398 4,006
Other accruals and liabilities 1,894 772
------------------ -----------------
Net cash provided by operating activities 52,482 49,203
------------------ -----------------
Cash flows from investing activities:
Purchases of property and equipment (21,399) (18,364)
Investments in marketable securities (71,540) (55,717)
Proceeds from maturity of marketable securities 46,256 18,972
------------------ -----------------
Net cash used in investing activities (46,683) (55,109)
------------------ -----------------
Cash flows from financing activities:
Principal payments on long-term debt - (11)
Repurchase of common stock (20,853) (1,834)
Proceeds from issuance of common stock 6,395 5,300
------------------ -----------------
Net cash (used in) provided by financing activities (14,458) 3,455
------------------ -----------------
Decrease in cash and cash equivalents (8,659) (2,451)
Cash and cash equivalents, at beginning of period 24,725 27,176
------------------ -----------------
Cash and cash equivalents, at end of period $ 16,066 $ 24,725
================== =================
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
THREE MONTHS ENDED TWELVE MONTHS ENDED
----------------------- -----------------------
JANUARY 1, JANUARY 3, JANUARY 1, JANUARY 3,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Percent of sales
Retail 80.3% 79.4% 78.1% 78.5%
Direct 10.3 12.3 11.5 13.0
E-Commerce 5.0 4.5 4.6 4.3
Wholesale 4.4 3.8 5.8 4.2
----------- ----------- ----------- -----------
Total 100% 100% 100% 100%
Sales growth rates*
Retail 18% 39% 23% 38%
Direct -1 38 10 23
E-Commerce 29 50 33 35
Wholesale 32 66 72 21
----------- ----------- ----------- -----------
Total 17% 41% 24% 35%
Same store sales growth* 12% 28% 16% 31%
Stores open:
Beginning of period 362 343 344 322
Opened 8 3 31 27
Closed --- 2 5 5
----------- ----------- ----------- -----------
End of period 370 344 370 344
Total square footage (000s) NA NA 351 314
Average sales per store (000s) NA NA $1,247 $1,101
Stores > $1 million sales NA NA 64% 49%
Avg. sales per mattress unit $1,975 $1,784 $1,906 $1,686
(Co-owned Channels)
<FN>
* Fiscal fourth quarters 2004 and 2002 include 13 weeks, as compared to 14 weeks
in fiscal fourth quarter of 2003. Same-store sales and sales growth rates have
been adjusted and reported as if each year had the same number of weeks.
</FN>
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